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Mar 3, 2016

3 trends forcing seismic shifts in retail

How to recognize — and deal with — disruptive waves headed your way.

Technology is changing rapidly and evolving in seemingly unpredictable ways. What can retailers do to better predict and proactively prepare for seismic shifts that are already underway? Shop.org’s annual gathering of retail and technology leaders offered a look at the current landscape and a preview of what’s to come.

1. Exponential change

This is the most exciting time to be in retail, said Facebook’s Nicolas Franchet. Every part of the organization is being disrupted by technology. New competitors are popping up, somewhere in the world, every day. Opportunities to redefine the industry are enormous.

Singularity University’s Salim Ismail

But it’s not always easy to know when — and what — changes are on the horizon. Singularity University’s Salim Ismail explained to attendees that humans are linear thinkers who aren’t good at spotting the doubling patterns that prompt exponential change. Part of the problem is that doubling patterns look linear for a long time, until they hit the curve and “everyone goes crazy” because disruption is inescapable. Drone delivery, Internet of Things and autonomous vehicles aren’t science fiction. In fact, these technologies are closer to broad adoption than you might think: The capacity for drone delivery doubles every nine months, conservative estimates suggest that there will be 50 billion Internet-connected devices in the world by 2020, up from 12 billion today, and Google’s self-driving car has traveled 2 million miles in California without an accident.

Ismail says the Internet, mobile and artificial intelligence have been driving change in the past decade, and predicts the next decade will bring an explosion in biotechnology, robotics and nanotechnology. Succeeding in a highly disruptive atmosphere requires a willingness to disrupt your own organization before competitors gain a foothold.

What’s your ExQ? Take an online quiz to determine your organization’s “Exponential Quotient” and see how it compares to disruptors like Uber, Airbnb and Google. Salim Ismail has identified a correlation between stock market performance and flexibility in organizational structure: The ability to adapt dictates market performance over time.

2. Tomorrow’s technology today

Uber launched in 2010, and there are now more Uber drivers than cab drivers in New York City, said ChannelAdvisor’s Scot Wingo. Adoption rates of new technology are increasing rapidly, and Wingo thinks virtual and augmented reality, drones and 3D printing will have an outsized impact on retail. The Home Depot is already using augmented reality to let customers try new paint colors via mobile app. And with forecasts estimating 20–25 million virtual reality headsets in use by 2020, there’s potential for retailers to provide even more immersive customer experiences.

Andreas Raptopoulos with a Matternet One delivery drone

Matternet CEO Andreas Raptopoulos showed attendees a Matternet One, the first drone designed for transportation of lightweight, time-sensitive goods. Nearly 90 percent of what’s shipped to consumers weighs less than five pounds, which is easy to transport by drone, and Raptopoulos’ company has developed a system that makes the cost — as low as $1.61 per delivery — a reasonable option for many retailers.

With so many potentially disruptive technologies on the horizon — from drones and virtual reality to machine learning and natural language processing — how can retailers keep pace? Wingo said companies should make sure someone in the organization is responsible for tracking trends in technology and keeping management informed. He also recommends “war games” that set aside time to think about the implications of new technology within the context of organizational strategy sessions. Bonus points if you make it fun: Lowe’s Innovation Labs use “science fiction prototyping” to think about “how technology may play a role in the future lives of customers and employees.”

The first two decades of the Internet were all about connecting people, but the next two decades will be about connecting devices. “It’s about 1995 in the Internet of Things,” said Maria Thomas, former chief consumer officer at SmartThings, but the impact of IoT will be huge and retailers could realize $400 billion to $1.2 trillion in benefits, including cost savings and efficiencies.

Maria Thomas, former chief consumer officer at SmartThings

Now that sensor technology is small enough and cheap enough to embed in almost anything, we can use connected devices to make better decisions and save money. But taking advantage of IoT will require organizational readiness: Think cross-functionally about how it will impact your company, from data and design to customer support and privacy.

3. Global opportunities

The world’s population is growing at a rate of nearly four people per second, noted BCBG Max Azria’s Alex Golshan, and access to the Internet is expanding. The Asia Pacific e-commerce market has been particularly explosive, powered mostly by Chinese consumers’ enthusiasm for shopping online.

“In other countries, e-commerce is a way to shop. In China, it is a lifestyle.”

Alibaba founder Jack Ma has said, “In other countries, e-commerce is a way to shop. In China, it is a lifestyle.” More than seven in 10 Chinese consumers prefer shopping online to traditional retail, according to Michael DeSimone, former president and CEO of Borderfree. The e-commerce landscape is dominated by marketplaces like Tmall, JD and Alibaba that inspire consumer trust because they’re selling known brands and authenticating products, a major issue in China.

There’s plenty of room for Western retailers in categories beyond fashion and accessories. Searching for Costco on Tmall yields results for Kirkland- and Costco-branded products, which appeal to health-conscious Chinese consumers and are easily shipped from Taiwan. Tmall sales of Costco products reached $3.5 million on Singles’ Day in 2014. In fact, Chinese consumers bought more than 200,000 bottles of water and 2 million pieces of underwear — among many other items — from Alibaba’s Singles’ Day sale in 2014, and 286 million parcels were sent for delivery.

Forrester Research Vice President and Principal Analyst Peter Sheldon outlined three options for retailers looking to expand globally. Download the Summit 2015 Playbook to learn more about the pros and cons of cross-border selling, marketplace storefronts and market-localized stores.

“If you were late to the game on e-commerce, social media or mobile retail, don’t let the next disruptive wave pass you by.”

“There’s still time to plan and act on emerging technologies like the Internet of Things, 3D printing, drone delivery and virtual reality. Are you thinking ahead, or are you ignoring growing trends because they seem a bit far-fetched? Are you too focused on the tactical, tried and true wins to keep abreast of what could be the next big thing in commerce?” NRF Vice President of Digital Retail Artemis Berry said in her introductory letter to the Summit 2015 Playbook. “If you were late to the game on e-commerce, social media or mobile retail, don’t let the next disruptive wave pass you by.”